Prime Minister Alexis Tsipras's resignation, on the same day the European Stability Mechanism (ESM) made its first disbursements to Greece under the programme, will trigger an election on 20 September. Snap elections before year-end were widely anticipated after a number of MPs from Mr Tsipras's Syriza party voted against reforms required under the bailout, although the timing was unknown.
A September election would occur before the first programme review in October and may well hamper and delay the technical work and political decisions necessary for its completion. Relations with creditors appear to have improved in the run-up to the bailout agreement on 14 August. But the likely pause in legislating for reforms during the election campaign coming so soon after the agreement was concluded may rekindle or reinforce some creditors' concerns about Greece's ability to meet the programme's requirements.
Opinion polls and Mr Tsipras's personal popularity rating suggest that a Syriza-led coalition government of MPs and parties that have so far supported the new bailout agreement is a possible outcome. However, the election result is inherently unpredictable. It is not clear how the split within Syriza will affect the party's support (Greek media reports on Friday indicated that up to 25 Syriza MPs may join a break-away party). Election campaigning may demonstrate ambivalence rather than 'ownership' towards elements of the programme by the Greek authorities and electorate.
We highlighted the continuing risks associated with snap elections, delayed programme reviews, and the time it will take to rebuild trust between Greece and its creditors when we upgraded Greece's sovereign rating to 'CCC' from 'CC' on 18 August.
The upgrade reflected the easing of the acute liquidity strain that Greece has experienced in recent months, reducing the risk of a default to private sector creditors. As we assumed, the ESM approved the first tranche of financial assistance for Greece and decided on immediate disbursement of a EUR13bn sub-tranche in time for Greece to make the EUR3.2bn 20 August bond payment to the Euro-system. Nevertheless, a 'CCC' sovereign rating indicates that default on privately held bonds remains a real possibility.
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